My former department, the Treasury, usually does the right thing. But (as Winston Churchill probably didn’t say) only after trying everything else first. That’s the bottom line about the package of support the Chancellor announced today. In his February announcement, Rishi Sunak combined gimmicks (an energy bill “discount” that was in fact a loan) with penny-pinching (a £150 million fund for local authorities which will barely scratch the surface of the hardship faced by low-income families). In his March Spring Statement, he tried sleight of hand, reducing National Insurance for some workers while putting it up substantially overall, and describing it as a tax cut.
By contrast, today’s measures do three things the earlier ones did not. First, they are genuinely big enough to make a real difference – an extra £15 billion, or more than £500 per household. Second, they are targeted on the poorest, with about half the money going to the poorest third of the population. And finally, this time there are no gimmicks: the “discount” has been converted into a grant, and there is a direct cash payment to all those in receipt of means-tested benefits – a simple measure that puts money directly in the pockets of those who need it most. Computer (belatedly) says yes.
Where is the money coming from? Well, the simple answer is that inflation has already pushed up tax revenues quite a bit, as incomes and hence taxes have risen in cash terms even if they’ve fallen in real terms. But about a third will be funded by a “windfall tax” – now called the “Energy Profits Levy” – on oil and gas companies, with more generous treatment of investment to encourage them to reinvest those profits. Interestingly, in contrast to some earlier claims that they needed the profits to invest in renewables, the Treasury says that “ministers have been clear that they want to see the sector reinvest these profits in oil and gas extraction in the UK”. So much for net zero.
The package is not perfect – the “per-household” nature of the grants means that single people benefit more proportionally, although previous cuts to benefits, in particular the two-child limit and the benefit cap, mean that poor families need the money more. More broadly, one-off measures like these do not reverse the damage done by a decade of austerity and benefit cuts. The Chancellor, and the government as a whole, are still committed to an approach to the welfare state that has, and will continue, to drive up child poverty and destitution. Reversing that will take a lot more than we saw today. But it’s a start.
Jonathan Portes is Professor of Economics and Public Policy, King’s College London
